Cathie Wood, founder and CEO of ARK Invest, has gained popularity in the past few years as an investment manager behind a well-performing group of exchange-traded funds (ETF's) that are followed closely by folks on Wall Street and Main Street alike. The fund posted excellent performance in 2020.
Interestingly, Cathie Wood posts a daily update about her portfolio of holdings, which makes it easy for those at home to follow her moves. Two stocks in Cathie Wood's top 25 holdings are Roku (ROKU 0.68%) and DraftKings (DKNG 0.63%). These two companies are near the top of the field in their respective categories and they could become good stocks to buy in the next stock market crash.
Let's take a look at why that's the case.
Roku, the streaming content platform pioneer, benefits from a long-run secular tailwind as consumers watch more streaming content and less linear TV. In fact, in Roku's first quarter, folks watched 18.3 billion hours of content through its platform, increasing 49% from the 12.3 billion hours in the same quarter last year.
Certainly, some of that increase was fueled by the effects of the coronavirus pandemic. Even though economies are reopening and vaccination campaigns are well underway, people still spend more time at home than before the pandemic onset. Still, the secular shift away from linear TV appears to be the stronger factor in the company's prospects.
In four straight years, Roku has accelerated its rate of revenue growth. In other words, in each of the last four years, Roku has grown revenue more than the year before (24.6%, 28.6%, 44.8%, 52%, 57.5%). Its product and service both work, and people seem to love the value it offers. Indeed, Roku is the No. 1 operating system in smart TVs in the U.S. and Canada and is No. 2 in Mexico.
DraftKings is a leading market player in daily fantasy sports, online sportsbooks, and igaming. The company is riding a wave of state-by-state legislation that is legalizing online sports betting (OSB) and igaming across the U.S. It was roughly three years ago that the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992. That paved the way for states to legalize certain gambling activities formerly forbidden.
Twenty-three states have legalized sports betting, and 15 states allow sports betting online. DraftKings offers its services in 12 of those states with more on the way. The trend is giving DraftKings an opportunity, and it is capitalizing. The company has signed up 1.5 million monthly unique players, increasing over 100% from the prior year's total of 720 million. Further, it's engaging these players more, as average revenue per player increased by 49% year over year to reach $61.
As more states legalize wagering activities and DraftKings develops relationships with existing players, its revenue will continue to soar. The company is not yet profitable, but it appears it will only be a matter of time if it continues on this trajectory.
Both companies have excellent long-term prospects, and investors have noticed. DraftKings and Roku stock are trading at forward price-to-sales ratios nearly identical at 17 (see chart). These lofty valuations could be one of only a few reasons to hesitate before buying shares in these excellent Cathie Wood growth stocks. However, a stock market crash could give you the price discount to make these stocks excellent values.
Investors should put DraftKings and Roku on their lists of stocks to watch, and consider buying them during the next stock market crash.